Session covers his contributions to Microeconomics for which he received the Nobel Prize, the world economy and India’s role in the world economy
15 February, 2024, Bengaluru: The Economics area of IIM Bangalore hosted a fireside chat on 15th February 2024, with Nobel Laureate Prof. Michael Spence, Co-chair, Commission on Global Economic Transformation, Institute for New Economic Thinking (INET), which was chaired by Prof. Manaswini Bhalla, faculty from the Economics area of IIM Bangalore. Also present at the session were Rohinton P. Medhora, Chair of the Governing Board, Institute for New Economic Thinking; Robert Johnson, Co-founder and President, Institute for New Economic Thinking, and Prof. Rishikesha T Krishnan, Director, IIM Bangalore, who welcomed the dignitaries.
Prof. Spence, who is currently in India as part of the INET delegation, is known for his job market signaling model, which revolutionized the field of Microeconomics. He has a wide range of interests. The broad themes covered during the conversation with Prof. Michael Spence were relevance of his contributions to Microeconomics for which he received the Nobel Prize – in today’s world of increased information; views about the world economy – Permacrisis and how the world has changed after Covid as well as micro steps to take to mend/avoid the crisis; role of India in the world economy, and suggestions for the MBA graduates of the future. During the Q&A session following his talk, Prof. Michael Spence answered queries related to interest rates, demographics, sector-wise growth, etc. from students, faculty and others in the audience.
Prof. Spence started his talk by explaining the revolutionary signaling model and its role in today’s digital age. “In financial or labor markets with significant information asymmetry – it is the mechanism to fill information gaps. Signaling works if there is some activity which is costly, visible, and the people want to send a message. The application of signaling is much broader than just Economics and markets. Artificial Intelligence will have a great impact in all this. It is transformational, has already impacted biomedical and life sciences, it is going to result in massive productivity surge if managed well. But all kinds of accountability questions will persist.”
Discussing his co-authored book, Permacrisis, where he states that the world economy has gone through a tectonic shift since the pandemic and at this point faces a permacrisis, he said, “Three things are going on in parallel, processing and bringing them in focus is not easy. First, there are events like shocks, pandemic, wars, climate shocks, financial shocks, etc. Can you navigate with some sort of stability in such an environment? The second thing is fairly large structural changes. Third, there are three powerful scientific and economic transformations - digital, biomedical and life sciences transformation, and massive energy transition that we ought to go through to achieve more sustainable growth patterns. A whole lot of investments will be made in the world in response to shocks and geopolitical tensions that would not have been made in the old world. Then the question arises if you could do a reasonably decent job of thinking through international interdependence and cooperation in this much more complicated world. The book also looks into the issue of mindset changes, focusing on helping people think that it is not just an interesting thing to read about, what happens in the world depends on being self-conscious in periods of rapid structural change and thinking through the consequences of failing to do so. The book tries to bring into focus what the world looks like in respect to all these.”
Prof. Spence pointed out that there was no single formula out of this crisis. “Focus on small steps in the right direction and avoid doing things which are unproductive and disastrous from a global point of view. We have declining productive trends. On the growth side, you can find more productive capacity in the global economy, help lower income countries get back in balance. Deliver inclusive, sustainable and secure growth with the help of artificial intelligence and other innovations.”
Regarding the challenges and advantages that India faces in terms of demography, Prof. Spence said, “India is a major global economy with the highest potential for growth. Demographics is on your side. However, demographics in a place that cannot educate everybody, is not on your side. The digital side of the economy is a stunning success. The multilingual complexity and other diversities in India is something you need to deal with. India has not followed the Asian growth model yet. If you identify having powerful employment engines that will engage everybody and bring them into the modern economy – that is a major challenge as well as opportunity.”
Responding to whether India should move away from manufacturing to a more services dominated economy, he said, “The world is changing, digital technology has partially displaced labor-intensive processes. A service-driven economy is fine, but check if the employment engines are powerful enough to pick everyone up. You already have manufacturing, which needs to be made more efficient to be at par with the global economy.”
Highlighting that the most important assets in the future of management education include evolving, adaptability and responsiveness, he added, “Indian B-schools have made good progress in keeping pace with technological, marketing, behavioral and entrepreneurial changes. You have a good chance of being fully cognizant of technological and other changes.”
He wrapped up the talk with a word of advice for the students. “Find something you really love to do, something that motivates you. It could be making impact, being creative, business innovation, or something else. Remember, making plans does not work all the time. Think beyond conventional measures of success and make a difference.”
Prof. Michael Spence is a Nobel Laureate in Economics and currently serves as the Co-chair of the Commission on Global Economic Transformation at the Institute for New Economic Thinking. He has served as the Dean of the Faculty of Arts and Sciences at Harvard and the Dean of the Graduate School of Business at Stanford University. He is also a Professor of Economics at the NYU Stern School of Business, a Senior Fellow at the Hoover Institution, Chairman of the Academic Council of the Fung Global Institute, and Member of the Board of the Stanford Management Company, and the International Chamber of Commerce Research Foundation. He was also the Chairman of an Independent Commission on Growth in Developing Countries. In addition to his academic roles, he serves on the Boards of several companies and is a Senior Advisor to Oak Hill Investment Management and a Consultant to PIMCO. He has previously served on the Boards of Genpact and Mercadolibre, and a number of private companies. He is the author of the book, ‘The Next Convergence: The Future of Economic Growth in a Multispeed World’, and is working on a co-authored book, ‘Permacrisis’. Prof. Spence has a BA in Philosophy from Princeton University, a BA/MA in Mathematics from Oxford University, and a PhD in Economics from Harvard University.
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